Debt Help

How to Use Your Credit Cards Wisely and Save Money

Think about your where you had your most expensive debts ever: Yes, you all got them from your credit cards. There’s just something tempting about getting any of those cards and before you know it, you have already been charged at least 12% interest rate of all expenses that you have incurred for the month. Here are some credit card debt facts that you might want to take note of before applying for another one, and save money in reducing your debts.

Not all credit cards offer 0% annual fee. There are credit card companies that charge annual rates upon subscription, and that is true whether you have used your credit card or not. You might be surprised when a billing statement arrives in your house and that annoying annual fee is all that you owe even if you have not used their service. Beware of these credit card companies and always ask whether they have this kind of procedure before you enroll in them.

Opt for credit card plans that offer lower interest rates. If you have a habit of carrying over your debts from one month to another, (which is not a very good habit if getting out of debt is your action plan), make sure that your credit cards are those that charge about 9-12% interest rate compared to those that can come as high as 12-15%. Remember that interest charges come with the actual purchases that you have made, so don’t make those interest fees swell even more with buying more than what you really need.

Choose a credit card company that offers a longer grace period. A grace period is the maximum number of days that you can use to give you time to pay your bills without getting any penalty. Longer grace periods mean that you have greater chances of making enough money to settle your accounts, thus giving you more time in eliminating debt more easily.

Use cash whenever you can. The reason is obvious—you don’t get to be charged any interest rate for that purchase. While credit cards give you cash advances and freebies upon enrolling in their promos, it won’t be long for you to realize that you would actually have to pay for higher bills than you usually do because of availing that service when you don’t have to.

Lastly, remember the golden rule in shopping: Ask before you pick. True, there are sale items that you really can’t put down, but ask yourself first if you really need them. You can save more money during shopping if you bring a list of what you really need to buy.  Stick to that list, keep that budget record and see how much you could actually have saved had you not been an impulsive buyer these past few years.  Sale racks can be very useful if they have the items that you have marked in your list.  Credit cards can be a very handy companion if you get to settle your bills on time so that you won’t have to face any interest rate charges for your monthly purchases. But if you are low on budget and you are trying to save money, use your credit cards sparingly to avoid further penalties and interest charges.  I hope these simple credit card debt facts are able to help you to get out of debt.

Setting up an Emergency Fund

Everyone should have emergency funds; some sort of money that is tucked away so that if anything happens, you can tap into that fund and cover what you need to cover, instead of going into debt.  What happens if your roof caves in?  If you have money saved away, you can get it fixed.  If you don’t, well, then you’re in for a bit of a problem.  Here’s how I suggest you go about setting up an emergency fund so that it does the most for you.

Start a savings account.  But, unlike a savings account where you may be saving for a vacation or something and can dip in whenever and wherever, do not ever touch this fund.  When you make a budget, add $20 or $100 or any amount every single month to the savings account.  If you add the same amount of money every single month, what you’re going to find is that you’re slowly building up your emergency funds.  If you do the $100 route, at the end of a year, you have $1200 saved that is accruing interest.  If both you and your partner each do it, that’s $2400.

One day, suddenly, your roof caves in, or your car breaks down, or you have a hospital payment, or ______ (fill in the blank).  Because you were diligent in setting up an emergency fund, you saved up enough in your bank account to cover that bill.  You take out what you need and pay for it in cash, bada bing, bada boom, and you’re done.  Rather than having to use a credit card and get in the risk of debt, you had cash to cover your repairs.  That is what emergency funds are for and that’s why it’s so important to make one.  It’s not hard and if you do it right and learn how to make a budget to include it, you won’t be hurting for money because you’ll get used to having $100 or $200 less a month.

But, make sure you balance building up your emergency fund, with reducing your debt.  You don’t want your credit card interest rates causing you to have more debt, just because you’re saving up money.  Most people suggest that you build up an emergency fund of about 3 to 6 months worth of expenses.  Others suggest $1000-1500.  You need to analyze your specific debt situation and ability to build up an emergency fund.   But, make sure you build up that fund, because when you do have an emergency, you won’t have to go into more debt.

Frequently Asked Debt Questions

When you’re in debt, one of the biggest things you may want is to have some debt questions answered. You’re not really sure what exactly is going on, but what you do know is that you want to understand it all. Here are a few debt questions that people ask and the answers to go with them to try and make it easier for you.

1. What is debt? Debt is you owing money to a certain credit collector. To get into debt, you need to take out loans (using a credit card is taking out a loan) and then be unable to pay it back on time. Any money you owe is that debt.
2. What are the risks of debt? Continuous debt. Think of it like this…If you’re in debt, you’re going to have the issue of interest on top of that debt. So, if your monthly payment is $200 and you pay $25 a month in interest, if you don’t pay all $225, you’re going to keep money tacking on that will just keep you in debt longer.
3. How do I get out of debt? Getting out of debt is not the hardest thing in the world. I have written 6 Tips for Reducing Your Debt. Get in contact with your creditor or a debt consultant and explain what’s going on. They want their money back and will do whatever they can to try and make it easier on you if it means their money is coming back to them.
4. How do I make a budget? I cover this question in my article, How To Make A Budget.  In short, add up all of your income, subtract all of your expenses, and pay debt and have a little bit of entertainment with the rest.
5. What is considered “bad debt?” Many people consider consumer debt (car loans, signature loans, credit cards) as bad debt.  Most people do not put mortgages in this category, though having your house fully paid off is probably a very nice feeling.  Student loans can be bad debt, depending on how much student loan debt you have.  If it’s enabling you to get a better paying job, then it helped.  Just make sure to use the extra money you’re earning to pay off the student loans.

Those are some debt questions that are often asked. Believe it or not, a lot of people don’t know what debt is. They aren’t exactly sure if it’s certain credits or everything or nothing. And, people don’t realize just how risky it is to owe money. The bank can take your house if you’re not paying your mortgage on time. Know what debt is and then ensure you don’t let it control you. That’s where your success will come in.  Feel free to ask to get answers to any of your other debt questions.